Confused about ‘Technical’ Taproot?

What does it actually mean for the average Bitcoin user?

On Nov, 14, 2021, Bitcoin was quietly upgraded in the first major change to the core code in over four years. This set of upgrades was known collectively as “Taproot,” and the “real word” definition provides us with a clue as to what might have been going on:

In other words, this is about strengthening the core “root” so that other “rootlets” can flourish.

It was, thankfully, a non-event, passing peacefully without incident when block 709,632 was mined by F2Pool.

Of course, if you’re a day-to-day user of Bitcoin rather than a developer, coder or general techie (as most of us are), even those few opening paragraphs may have raised more questions than they answered.

After all, it sounds terrifying.

There’s now trillions of dollars at stake, so why are they playing with Bitcoin’s code? Who are “they” anyway? Could it break? Do I have to do something different to continue using it? Is it safe to keep using? What does it mean?

Well, the short answer is that this update isn't meant for you and me — at least not directly anyway. This change is for the small army of techies around the globe who can now do all kinds of cool things they couldn't do before.

Sure, we might see a reduction in fees and maybe a few new options in wallet or exchange interfaces here and there in the future, but we won’t be doing anything fundamentally different from what we do now.

So, if it’s that big a deal, what’s going on?

Using Bitcoin is like driving a car

There’s probably more than a few people who have rolled their eyes since I have, once again, rolled out the same old analogy I’ve been using for years. But in fact, it’s now truer than ever.

Most of us can drive, even though it seemed daunting at first. That moment we realized that this 1,000-pound steel vehicle was moving under our control was one that tends to stick in our minds. Now, of course, we can drive for hours while chatting, eating and listening to music and not even realize we’re doing it.

However, most of us don’t really know how that car works. Some of us don't even know how to open the hood, let alone what a timing chain, carburetor or tappet is. Worse, very modern cars are all but off limits to the average user anyway.

But we don’t actually need to know how it works to drive it — we simply grab our key and we go. The car does it all for us. We trust it will work and we trust the engineering that exists inside. If something goes wrong, we’ll take it to someone who knows how to fix it, which means we still don't need to know how it works if we don't want to.

Using Bitcoin is very similar in some ways. Our first transaction, like our first time driving, was full of anxiety and worry about the consequences of getting it wrong, but, over time and repeated use, that fades away. And in both cases we don’t need to know how any of it works, unless we want to.

So, even though we don't need to know and can carry on using Bitcoin exactly as before, it might be nice to have a cursory understanding of what’s under the hood, even if we’re not entirely sure what we’re looking at.

At the very least it would be nice to know — as end users — that we don't have to worry about it.

How did we get here?

Bitcoin is, of course, computer code. True, it’s extremely clever computer code, but it is still essentially a bunch of ones and zeroes. However, unlike files on your computer, a single bitcoin can’t be copied or be in two places at the same time, the same way a physical object can’t be.

Solving this issue of digital scarcity was Bitcoin’s breakthrough, or, to put it another way, it allowed us to attach value to what is essentially a unique collection of data.

Bitcoin itself is also incredibly secure and resilient, but the trade-off is that it is relatively slow and difficult to scale, something for which it has suffered criticism over the years. For technical reasons, there are limits to how far its core code can be changed to increase speeds without compromising security or creating different problems, but some alternative (and arguably unsuccessful) versions of Bitcoin, such as Bitcoin Cash and BSV, have tried anyway.

Bitcoin developers (the “they” we refer to in the early paragraphs) have instead looked to a different solution, essentially by building a superfast system that sits over the top of the main Bitcoin network, but only interacts with it when it needs to finalize a bunch of transactions. The most well known of these is the Lightning Network.

Over the last few years, development of these “second layer” systems has become increasingly important as Bitcoin’s adoption has grown. Without it, Bitcoin could never hope to be a global true payment system.

Taproot is primarily about making this development easier and more efficient, but it also has a three specific effects for us — as end users — that we might find useful to know.

Impact 1: Privacy

Every transaction that we make is recorded, forever, on Bitcoin’s ledger in such a way that it can never be retrospectively altered. This is what we refer to when we talk about the blockchain.

This blockchain is completely public, which means you can always track your transactions and refer back to them if you need to. But so can everyone else, and, although transactions are shown in anonymous address format (and not, for example, as personal names) it means that it is technically possible for someone to link transactions to your wallet, even if they can’t be entirely sure who “you” are.

This is not a security issue — there’s no way to access your addresses — but it could, in some specific circumstances, be a privacy issue. In addition, there are certain transactions that show up as more obvious than others for technical reasons we don't need to go in to.

Taproot addresses some of this by allowing transactions to be grouped together and presented in a different way on that database, making it difficult to track them.

For most of us, of course, this is neither here nor there, but perhaps it’s somehow reassuring to know that over time, it will become harder and harder for individual transactions to be traced.

In terms of day to day use, however, this is all “behind the scenes” and there’s nothing we need to do differently.

Impact 2: Smart Contracts

This is the most technical of the changes to explain, but also one that is likely to have the greatest impact going forward.

This is all to do with building new and exciting things in the emerging industries of DeFi (“Decentralized finance”) NFTs (“Non-fungible tokens”) and DApps (“Decentralized Applications.”) With that many acronyms, you know it’s for the developers!

Essentially a “smart contract” is way of making certain things happen when certain conditions are met and locking it into the code of transaction. A very simple example might be a payment being released to a wallet when another payment is received, which could be useful for escrow applications.

This is not quite the same as smart contracts on other platforms, such as Ethereum, which run a more advanced and versatile form of programmability, but it is enough for developers to get creative on the Bitcoin blockchain while ensuring that the base layer remains relatively simple.

For us, there’s nothing to do except carry on as usual. However, it’s likely we’ll see some new and fascinating developments creeping through in the future.

Impact 3: Lower Fees

Everyone likes the same service, but cheaper, and these updates are no exception.

Interestingly, this is more of a side effect caused by the way that some transactions will now be grouped together. The bottom line is that the actual number of bytes (that’s the data send to the Bitcoin blocks for processing by the network) will be less and, since fees are calculated on data (and not transaction) size, fees should be less.

This is why, incidentally, it’s possible to send transactions for millions of dollars across the world very quickly for the same few cents it would cost to send a handful of dollars.

For us, depending on how we interact with the network as a whole, we may start to see lower average fees overall at some point. Otherwise, we’ll not notice any difference.

The bottom line

The genius of Bitcoin and, more importantly, those who work on it, is that it is an incredibly robust system with a lot of safeguards protecting it from attack, misuse and, of course, human error. When an update is deployed there is, perhaps, a moment of vulnerability when it is first let loose into the ecosystem — did the developers get everything right?

However, these updates takes years to test and deploy and have to be agreed upon by a very high percentage of the people who provide processing power for the network. It is a deliberately slow and perhaps painful method, but resilience and continuity are essential. Bottom line, it works.

And we can relax already. If by some wild unpredictable chance the update had failed, the effects would have been instantaneous. The fact that it didn’t means that we can avoid worrying about it and carry on regardless while the developers figure out their new toys and start putting together the new applications we’ll be using in the future.

Then, one day, back in that analogous car, you might discover it’s faster, quieter and more efficient than before. And then, just as you’re marveling at how they managed to do it, you might also notice a few extra buttons on the dashboard that do some really cool and helpful things. Even better, you’ll not even need to go to the garage to get that work done.

But in the meantime, we can carry on using Bitcoin — safely and routinely — exactly as we did before, but perhaps with a little more certainty and excitement about what lies ahead.

After all, from here it just gets better and better.

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Disclosure: The author of this opinion piece has been heavily involved with bitcoin for several years and holds a substantial cryptocurrency portfolio, including bitcoin. He also has a mining operation running the SHA-256 algorithm based in Siberia and is a published author on the subject of promoting the understanding of cryptocurrency. Jason is an analyst at Quantum Economics and consultant to Luno.

Disclaimer: This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.

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